Rogers Communications is still a buy, says Echelon

Following the company’s fourth quarter results, Echelon Wealth Partners analyst Rob Goff has maintained his “Buy” rating on Rogers Communications (Rogers Communications Stock Quote, Chart, News TSX:RCI.B).

On Wednesday, Rogers reported its Q4 and fiscal 2019 results. In the fourth quarter, the company reported Adjusted EBITDA of $1.53-billion on revenue of $3.95-billion, a topline that was a touch higher than the $3.93-billion the company posted in the same period last year.

“Our fourth quarter results reflected healthy wireless postpaid and Internet customer additions, and strong demand for Rogers Infinite data plans, which grew 40 per cent sequentially to 1.4 million subscribers,” CEO Joe Natale said. “We were the first to start deploying 5G technology in Canada, and 2020 will see the early stages of our multiyear, multibillion-dollar 5G rollout plan. Investing in 5G is not only critical to Canada’s digital economy, it is critical to Canada’s global competitiveness. As we enter this next decade, we are confident in our long-term growth strategy to deliver the most advanced networks and a continuously improving customer experience while growing shareholder value.”

In a research update to clients today, Goff maintained his “Buy” rating and one-year price target $74.00 on Rogers Communications, a figure that implied a return of per cent at the time of publication.

“We continue to believe Rogers’ leadership in its movesto the Infinite pricing model and equipment financing away from subsidies will be positively rewarded despite ongoing financial costs through H120,” the analyst said. Furthermore, we support management’s expectations of improved momentum at Wireless in H220 and thereafter where 5G related usage/services offer significant upside and Rogers is positioned to realize returns on the $1.8B it invested to dominate the 600Mhz spectrum auction in Q219. Wireline’s move to IPTV looks to see new services, with a focus on connected home services in particular, supports an outlook for sustained, modest EBITDA growth while capex intensity/FCF margins are targeted at 20-22%/25% exiting 2021 from 29.0%/20% for Q419.”

Goff thinks Rogers will post EBITDA of $6.29-billion on revenue of $15.3-billion in fiscal 2020.

“We remain bullish towards Rogers’ shares looking for Wireless to return to sustainable growth,” Goff addded. The Company’s 5G spectrum affords it the ability to stimulate users and revenues around video and IoT services as it moves to narrow the 35% Canada/US penetration gap. The increased subscriber utility with the Infinite plans should ultimately lead to subscriber growth stimulation (aka narrowing the penetration gap) and stronger ARPUs. On the wired front, Rogers announced that it now has 325K subscribers to its Ignite platform. We see this as a gateway to
new services featuring the connected home while yielding declining capex as noted and opex efficiencies that are arguably not imbedded in the expectations. We note that video revenues for Q419 were 36.0% of wired revenues as they have trended down from 50.0% five years ago. We suspect video represents less than 25% of wired EBITDA given internet at ~58.0% of revenues and significantly higher margins (more than double video).”